a rumelt perpsective on good strategy

Good Strategy

By Dr. Michael McDermott mcdermottm1@nku.edu

“A hallmark of true expertise and insight is making a complex subject understandable”

Client to Consultant: “So I am paying you to ask me

questions”

Consultant to Client: “Absolutely! Without these questions you are not identifying your main challenges”

Strategy – such an over-used and abused word

Strategy and Two Popular

Misconceptions

1. Strategy is formulaic or mechanistic

2. Strategy is goal-setting mcdermottm1@nku.edu 4

The Three Key Hallmarks of Fake Strategy • You must define the challenge • If you cannot define the challenge, you

cannot evaluate the strategy or improve it

Failure to Face the Challenge

• Do not confuse desire with a plan to overcome obstacles

Mistaking Goals for Strategy

• Fail to address critical issues • Objectives are impracticable

Bad Strategic Objectives

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Bad Strategy in 3D

The Focus is on 3D • Desire; • Drive; and • Determination

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The 3d Essence of Bad Strategy

Desire Drive Determination

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Incoherence: The Essence of Bad Strategy

• At best pursuing multiple unconnected

objectives

• At its worst, it involves pursuing conflicting objectives

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The Cost of Bad Strategy

It is a source of weakness

because it is incoherent

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So what is Genuine or Good Strategy?

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Essence of Genuine Strategy:

The D² rule

• Avoid Dumb • Focus upon Direction

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The Essence of Good Strategy

Direction

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What is Direction?

• It’s focus

• And this can only be obtained by making choices

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=

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Problem-Solving

Define the problem Make Choices –

hard choices

(Genuine) Strategy

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Strategy is identifying the key challenges and the means to overcome them

Therefore developing a strategy is an exercise in

problem-solving

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Stop Right There!

You suggestin’ we gotta

problem? mcdermottm1@nku.edu 17

Pre-requisite for Genuine Strategy:

Define the challenge

• If you apply careful consideration and define then challenge then you are well on the road to good strategy

• If you fail to identify and analyze the obstacles, you cannot have a strategy. – Instead, you have either a stretch goal, a budget, or

a list of things you wish would happen”

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The Absence of Good Strategy Explained

Good Strategy

• Begins with the admission that there is always a specific problem

Bad Strategy

• Begins with an implicit denial that there is any specific problem

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Essence of Good Strategy

Diagnosis Guiding Policy

(the signpost indicating future

direction)

Coherent Action

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Strategy is the Path

• The How • The Why • The Where • The When • The Who

(Genuine) Strategy

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What is Genuine Strategy?

• A cohesive response to an important challenge

• A genuine or good strategy must therefore include the details – the actions to be implemented

• Strategy is not grandiose goals – it’s about how an organization will move forward

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Developing Genuine or Good Strategy

• It emerges from identifying one or two critical issues in the situation and then focuses and concentrates action and resources on them.

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Bad Strategy vs Good Strategy Bad Strategy: Widespread • Urges achievement of a

goal…but nothing else • It’s essentially wishful

thinking • ‘Problems’ are glossed over; • Tries to meet conflicting

goals and ducks making hard choices

Good Strategy: Rare • Is honest in identifying

challenges • develops a cohesive

approach to overcome them

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Common Strategic Thinking

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Strength

Opportunity

Coherence: The Essence of Good Strategy

• Good strategy does NOT simply build upon existing strength

• It is a source of strength because it is coherent

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Strategy and Competitive Advantage

• Competitive Advantage often arises simply by

having a genuine or good strategy

• Because most organizations have a fake or bad strategy – Sure they have goals but are essentially guided by

‘spend more, work harder’ mantra

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The Advantage of Having Good Strategy

• Focus – as it is so unexpected by rivals

• And as such identifies the “don’ts” as well as the “do’s”

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Genuine Strategy Provides Dual Purpose

• It stipulates the “do’s”

• It stipulates the “don’ts”

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Remember

it's just as important to decide

what not to do in business as it is to determine what to do

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What makes for a good strategy?

• Harnessing power and applying it where it will have greatest effect

• We can find good examples of this

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Sources of Power: Leverage

Strategic leverage arises from a mixture of: 1. Anticipation 2. Insight into what is most pivotal or critical in

a situation; 3. Making a concentrated application of effort

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OK. I now get it. Strategy and

goals are two different things.

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REBUTTAL OF BEING BETTER ARGUMENT

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But business success is simply about being

better. Isn’t it?

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The “Being Better” Argument

• In order to succeed, it’s true you do need to possess at least one advantage:

• Better • Cheaper • Faster • Richer • Stronger

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The “Being Better” Argument

• But simply ‘being better’ provides only short-lived success

• The ‘better’ is based only on operations

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Three Questions 1. What biblical story do you most associate with

an underdog defying expectations to beat a more impressive opponent?

2. Who is the greatest boxer of all time, and indeed considered the greatest sportsman of the 20th century?

3. Who are considered the greatest ever football (i.e. soccer) team?

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What explains their success?

Their success was based upon Genuine Strategy

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Example 1: David vs Goliath

David • Youthful • Inexperienced in hand-to-

hand conflict • Physically weak • No protection

Goliath • Mature • Experienced in hand-to-

hand conflict • Physically strong • Heavily protected

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Example 1: David vs Goliath • If David is to win, he

only had one option…and his insight enabled him to identify that fact

• Goliath – classic case of ‘brawn and no brain’

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Lessons from David vs Goliath

Smarter can beat better

• Good strategy comes

from fresh insight into strengths and weaknesses, and opportunities and threats

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Facing ‘Goliath’

• So developing a strategy to topple the ‘invincible’ is not easy

• Do you try and copy the best – but the core competence of the best is always hard to imitate

• Or do you have to invent a superior solution?

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Example 2: Ali vs Foreman World Heavyweight Championship Fight, Zaire,

October 1974

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The Challenger 32 years of age

The Defending World Champion 25 years of age

Ali vs Foreman: Comparison Based Upon the ‘Better’ argument

Ali • Former World Champion • Past success was based on

being ‘better’ • Past his peak in terms of

being ‘better’ • 32 years of age • Making a comeback after

years without competitive fights

Foreman • Defending World Champion • Present success was based

on being better • At his peak • 25 years of age • Getting better with each

fight

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Who is Going to Win?

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What’s Missing?

We have not identified a crucial difference!

Only one boxer had a genuine

strategy mcdermottm1@nku.edu 48

Ali vs Foreman: Comparison of Strategy

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Ali vs Foreman • Two boxers • One, the defending world champion • The other, the former, older champion • One Common goal • Two Different Strategies

– Ali – Good Strategy – Foreman – Bad Strategy

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Ali vs Foreman

Ali Practiced Good Strategy • diagnosed his critical problem • He could no longer “float like

a butterfly, sting like a bee” over 15 rounds against a younger opponent

• So he developed an action plan to overcome his critical weakness

• Rope-a-dope

George relied on Bad Strategy • The 3D Effect

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Rope a Dope

Ali Wins by a Knockout in Round 8. Foreman had run out of steam.

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Two Vital Lessons from Ali vs Foreman

1. Even the very best

are eventually overtaken;

2. If they are to

continue winning, they need genuine

strategy

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Lessons from “Rope-a-dope” • Exhaust your rival’s

resources through suckering them into constant expenditure of ineffective yet debilitating effort

• When you look at the market for some products, do we see that the market leader is employing the “rope-a-dope”?

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Example 3: Barcelona’s Dominance of World Soccer

• The present Barcelona side, Spanish and

European champions, are considered the greatest team of all time;

• It features Lionel Messi (born 24 June 1987), the World Footballer of the Year (2009, 2010)

• Spain, current European and World Champions, is heavily dependent upon Barca players

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Example 3: Barcelona and Spain’s Dominance of World

Soccer

This example shows that this success is based upon a genuine strategy that

was developed 40 years ago

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Example 3: Barcelona and The Dutch Legacy • In the early 1970s, Barcelona was managed by

Dutch coach, Rinus Michels • He bought the player Johan Cruyff – ‘the Messi’

of his generation • Cruyff managed Barcelona in the late 1980s-mid

1990s • One of his key players was Josep Guardiola,

manager of Barcelona since 2008 • Today the present Barca team are hailed as the

greatest ever side

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Example 3: Barcelona and The Dutch Legacy • In 1970 Brazil beat Italy 4-1 in the soccer

World Cup final in Mexico • The Brazilian team was considered invincible • The next World Cup was in Germany in 1974 • But how could anyone beat Brazil?

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Example 3: The Dutch Influence on Soccer

• Rinus Michels, the coach of the Dutch national team, concluded that no one could match Brazil

• So a radical new approach was required • He invented ‘total football’ • At the heart of this new system was the player

Johan Cruyff

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Total Football Defined

• In Total Football, a player who moves out of his position is replaced by another from his team, thus retaining the team's intended organisational structure. In this fluid system, no outfield player is fixed in a nominal role; anyone can be successively an attacker, a midfielder and a defender. The only player fixed in a nominal position is the goalkeeper.

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The Immediate Outcome

• In 1974 Holland beat Brazil but were beaten in the final 2-1 by the host country Germany

• In 1978 Holland was again beaten in the final by the host nation Argentina

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Barcelona F.C: The Lasting Legacy

• Michels introduced ‘total football’ to Barcelona

• The commitment to ‘total football’ continued under Cruyff

• Cruyff recognized the exceptional ability required to implement ‘total football’

• He thus established in 1978 “La Masia”, the youth academy to train young players in the system from an early age

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Barcelona F.C: The Lasting Legacy

• One of the first graduate from ‘‘La Masia” was Guardiola, exceptional player and manager;

• Today’s current midfield of Xavi, Iniesta and Fabregas are all graduates of “La Masia”;

• Messi is also a product of the youth academy

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Barcelona F.C: The Lasting Legacy

Barcelona F.C. • When Barca won the

European Champions League in 2009, 8 of the 11 players were graduates from the youth system

Spanish National Side • When Spain won the 2010

World Cup the 22 man squad included 8 Barca players and 6 were in the starting 11 for the final

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The Lasting Legacy: From Total Football to Tiki-taka

Tiki-taka has been variously described as

• "a style of play based on making your way to the back of the net through short passing and movement"

• a "short passing style in which the ball is worked carefully through various channels, and

• a "short passing, patience and possession".

• The style involves roaming movement and positional interchange amongst midfielders, moving the ball in intricate patterns, and sharp, one or two-touch passing.

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The Lasting Legacy: From Total Football to Tiki-taka

• One of the weaknesses of Spanish sides and the national team was that their players were often much smaller and less physical than players from other nations (e.g. Northern Europe, Africa);

• Tiki-taka focuses on movement, possession and skill

• Some of the best players for Barcelona and Spain are physically small

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Barcelona and Competitive Advantage

Differentiation • Barcelona competes through

innovation – it has developed a unique style or brand of football

Low Costs • The youth academy enables

Barcelona to produce the world’s best players at low costs;

• This reduces the club’s need to spend in excess of $50m per player

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Barcelona and Competitive Advantage

Competition: • competitors have so far failed

to overcome the Barcelona system;

• This is despite the fact that arch-rivals, Real Madrid have:

• acquired the world’s most expensive player ($132m);

• the world’s highest paid soccer manager (about $20m)

Customers: • Barcelona is the world’s

most popular club as its style is uniquely entertaining;

• It has 20m ‘likes’ on facebook, narrowly beating Real Madrid

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Barca Has Clear Core Competencies

• “Core competencies are the most significant value creating skills within your corporation and key areas of expertise which are distinctive to your company and critical to the company's long term growth”.

• It can be leveraged widely

• It’s hard for rivals to imitate

• It’s of great value to customers

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1. Multiple Lessons from Barca and its Genuine Strategy

• It arose from a foreign idea (i.e developed in Holland)

• It involved honest internal analysis and identification of weakness;

• Indeed the essence of the new strategy is to render weaknesses that cannot be overcome obsolete;

• It has received constant commitment over 40 years – even in ‘difficult’ times;

• It is now delivering the best ever results as the original business model (i.e. total football) evolved to ‘ticki-tacka’;

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Multiple Lessons from Barca and its Genuine Strategy

1. It is centered upon differentiation (i.e.

innovation);

2. The commitment to innovation compelled a focus upon New Product Development (i.e. the youth academy)

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Multiple Lessons from Barca and its Genuine Strategy

3. New superstar brands (i.e. players) are

developed at low cost and sourced locally and internationally;

4. Costly acquisitions are seldom required – and even when they are they are graduates of La

Masia who were allowed to join other clubs

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Multiple Lessons from Barca and its Genuine Strategy

5. Even when Barca is briefly overtaken by a

‘better’ team, it is without equal strategically, so the strategy is a constant that ultimately prevails

6. Barca may not always win, but its strategy always delivers exceptional value to its growing number of customers globally

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Barca vs Real Madrid: Genuine vs Fake Strategy

Barca • Genuine strategy • Commitment to core values • Consistency • Succession planning • Relies primarily upon

organic growth (i.e. development of players and managers)

Real Madrid • Fake Strategy – all about

goals; • Lacking core values • Inconsistency • Absence of succession

planning • Relies primarily upon

external growth (i.e. acquisitions of players and managers)

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Apple: the corporate Equivalent to Barca

• Apple has a genuine strategy; • At one time it struggled but remained totally

consistent to its strategy; • It seized opportunity (i.e. the iPod) and has

refined its original strategy with each successive product and/or service

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Apple: the corporate Equivalent to Barca

• Apple can/should expect to be overtaken briefly in some areas;

• But by applying its genuine strategy it can expect to once again come out tops

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Conclusions

‘Better’ is Good

‘Smarter’ is Better ‘Better’ and ‘Smarter’ is Best

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Conclusions

1. David was ‘smarter’ than Goliath

2. Ali extended his success by transitioning from ‘better’ to ‘smarter’

3. Barca relied on being ‘smarter’ to get ‘better’ and is now best

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Conclusions 1. Apple was ‘smarter’ than PC

producer; 2. PC producers were briefly ‘better’; 3. But Apple was the ‘smarter’ and used

this to conquer new markets, leaving PC producers to fight over scraps

4. Apple does not always have to be ‘better’ so long as it’s always ‘smarter’

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Genuine Strategy is about being different!

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